Sub-Contracting “A Problem Child or A Rising Star”

In recent months there has been a big out-cry of ‘greedy’ bad providers, top-slicing funds for their own benefit.

Wow! Is that really news?

Let’s travel back in time and remind ourselves how sub-contracting became the norm for funding smaller Apprenticeship Training Providers.

It was around 2010 after the publication of Skills for Growth (DBIS, 2010), this was the same year SFA replaced LSC. However, one policy remained to be implemented, namely the Minimum Contract Level (MCL), which was set at £500k MCL for contracting year 2011.

Let’s not be shy about this very clever policy. The MCL was to reduce the amount of direct contracts, which enabled the SFA to dramatically reduce its own workforce and costs. The consequence was the responsibility of managing smaller providers through sub-contracts moved to lead providers, alas with no extra funding for this additional responsibility and resources required. This was quickly forgotten, and lead providers were then questioned about funding being ‘kept’ from funds allocated for delivering Apprenticeships.

One to ponder on.

Why is this so important?

The MCL immediately displaced many smaller, local and niche, training providers [and some Colleges with a small cohort of apprentices].

The SFA response was to provide a letter of assurance to each training provider who fell below the MCL (£500k) that they could transfer their contract value to a larger provider (who had a contract value greater than £500k). And, although some levels of sub-contracting had previously existed, this opened up a completely new dimension. It also meant that new providers were unable to enter the market with a direct contract (due to size and risk), so had to actively seek a lead provider.

This movement was the start of confusing all parties what is a reasonable management charge versus what is simply a procurement fee.

For example, only:

1. An existing provider who fell under the MCL, transferred their previous year’s contract value (let’s say £250k) to their chosen lead provider. The lead provider would willingly have SFA add this amount to their overall contract, to enable the lead to pay the smaller provider under a sub-contract arrangement. The expectations of the smaller provider would be to receive most of the £250k, given the lead would be willing to sub-contract whilst retaining a % to cover their additional costs, thus an agreed management charge based on a contract value %.
2. A new provider would have no previous contract value and so would find a lead provider and negotiate a fair rate for their part in delivering an apprenticeship programme. The lead provider would have to fund from their existing contract, the lead provider would therefore purchase delivery [by volume and outputs] from the new provider, thus an agreed procurement fee based on an actual price £.

In 2012 SFA and DBIS raised concerns regarding the accelerated growth of sub-contracting as a high risk, which should have been expected, given the above. As a result, a supply chain management ‘good practice’ guide was produced; funded by LSIS, endorsed by AELP and AoC, and welcomed by SFA and DBIS. The guide attempted to broaden the view of sub-contracting, to adopt a supply-chain management approach; with a renewed focus to improve the overall quality and offer of Apprenticeships (I think AELP still hold the original copy).

Now to present day… …we can see why there is so much confusion of sub-contracting, too many people within and outside the sector (looking-in) have their own definition, view point and self-interest.

For me it has always been ‘keep it simple’, Providers who decide to be a lead-provider need to understand their role & responsibilities; and Providers who decide to be a sub-contract provider need to have a strong offer to negotiate the best deal (don’t complain after each provider have signed a contract).

Create a win-win.

Too simple? Probably.

Like many other industries we will have lead providers (Prime Contractors) who will stretch the rules and do not comply with an ethical common accord, however the solution in the current state has to be a targeted approach by ESFA, “a sniper gun not a shot-gun” to address case by case. There are some great examples of sub-contracting, where it is the vehicle to enable providers, by working together, to best serve employers and Apprentices alike.

The future state, whereby proactive providers had already started preparing for April 2019, would have changed the whole dynamics of sub-contracting – presenting an opportunity to build a supply chain relationship model for the sector. As we now know adding a transition year has brought this to an abrupt halt, with current sub-contractors reaching out to their lead providers to provide contracts and further support for their survival.

Again, ESFA need to understand their decisions have an impact on the sector and, as a direct consequence adversely affects Apprentices and Employers. It cannot only be the biggest survive, we have to protect the sector, to ensure we offer a diverse range of providers who can together deliver Apprenticeships by working with all different types and sizes of employers.

Now for a quantum leap to a fully operational Apprenticeship Service (2020?) which I predict will again require a different outlook on sub-contracting; I envisage this new era will require even greater collaboration, where providers form Joint Delivery Agreements with each other to meet employer needs, rather than sub-contracting based on funding values.

Summary

Government, The Agency, providers et al should avoid ‘bashing’ sub-contracting, it is an animal that has been created by policy decisions. Instead tease-out and resolve poor practice wherever that exists, we don’t need it. Positively embrace good practice and support providers to be ready for a fully integrated Apprenticeship Service, where the market demand will encourage a collaborative and joined up approach.

Let’s work together to make the perceived ‘Problem Child’ into a rising ‘Star’.

Dr Chris Payne, CEO ITS Group

About Dr Chris Payne: He has worked in the post 16 FE sector for more than 35 years, for Colleges, independent training providers and government agencies.

His career includes leading national training companies alongside providing an executive mentor service to senior management and leaders. All of which has been underpinned by his personal commitment to lifelong learning. He is best known for his strategic work and work based training (regionally and nationally) leading the modernisation of Apprenticeships in the early 90’s.

As a successful leader he continues to offer breadth & depth of knowledge & experience in the ever-evolving world of business and training. Lived in Nottinghamshire all his life, family man and has a highly competitive trait.

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